Mr Duncan Smith is understood to have told Prime Minister David Cameron that he did not want to take over at the Ministry of Justice.

Instead Mr Duncan said he would prefer to remain at the Department for Work and Pensions and see through his overhaul of the benefits system.

Mr Duncan Smith’s stubbornness has to be seen in the context of the battle he has fought with George Osborne at the Treasury over his benefit reforms.

The Chancellor is understood still to harbour concerns about the reforms and there is speculation in Whitehall that he was keen to prise Mr Duncan Smith away from Work and Pensions.

The top job at the Ministry of Justice – replacing Kenneth Clarke, who stood down suggesting he was too old to run such a large department – went to Chris Grayling, Mr Duncan Smith’s deputy at the DWP.

His decision meant that Mr Duncan Smith also turned down the position of Lord Chancellor, one of the oldest political roles in Britain dating back to 1066, would have taken control of the prisons and courts system in England and Wales.

A source close to Mr Duncan Smith said he rejected the move because he “wants to see through reforms he’s started here”.

The aide added: "It was a case of 'I've started so I want to finish'. He wants to see through what he started here. He is passionate about it."

Tensions with the Treasury over the policy have meant that Mr Duncan Smith has been seen for the past two years as the most likely Cabinet minister to resign over a policy disagreement.

It is likely that Mr Duncan Smith felt that if he left the DWP, the reforms – particularly the flagship Universal Credit which starts to be rolled out in April 2013 – risked being watered down.

Last September The Daily Telegraph disclosed how Treasury officials warned Mr Osborne that Mr Duncan Smith's reforms of the welfare system were in serious danger of arriving late and billions of pounds over budget.

A team of senior Whitehall officials and industry experts was assigned to investigate the development of the single payment, which is due to replace several different benefits in 2013.

Just over a year before that, shortly after the Coalition was formed, Mr Duncan Smith had a major row with Mr Osborne over the way his department was being treated by Treasury officials.

He allegedly told the Chancellor in August 2010: "I am not prepared to tolerate the appalling way you treat my department. Your officials must show more respect to my staff. They do not deserve to be treated in such an arrogant and rude way.”

As a former leader of the Conservatives, he has made it known to friends that his sole focus in Government is lifting the poorest off a life of dependence on benefits.

He intensively studied Britain’s benefits system after being ejected as party leader in 2003.

Mr Duncan Smith then committed himself to radical reform to free millions from a benefits “trap” where it simply was not worth getting a job and losing generous welfare payments.